Fed hikes by 0.25% in further downshift on tightening, but sees more hikes ahead By Investing.com
Economy 21 minutes ago (Feb 01, 2023 19:06)
By Yasin Ebrahim
Investing.com — The Federal Reserve raised interest rates by 0.25% on Wednesday, pushing monetary policy further into restrictive territory as the central bank looks to make up further ground in its battle against inflation.
The Federal Open Market Committee, the FOMC, raised its benchmark rate to a range of 4.5% to 4.75% from 4.25% to 4.5% previously.
The quarter-basis point hike marked the second downshift from the Federal Reserve following a slowdown to 50 basis points at the December meeting after four-consecutive 75-basis-point hikes.
At the December meeting, the Fed lifted its benchmark rate to a median rate of 5.1% in 2023, equal to a range of 5.00% to 5.25%, suggesting three quarter-point hikes were in the chamber for 2023.
But with monetary policy now at sufficiently restrictive levels and data continuing to show slowing inflation as well as weaker economic growth, many on Wall Street doubt whether there is a need for the Fed to go much further after this latest hike.
The core personal consumption expenditures price index, the Fed’s preferred gauge of inflation, slowed to 4.4% at a 12-month annualized rate in December from 4.7% previously. The three-month and six-month annualized rate slowed to 2.9% and 3.7%, the lowest since January 2021 and March 2021, respectively.
“The market is saying we’re good with it [a Fed pause]. I don’t think anyone would look at the Fed and say, you didn’t do what you said you were going to do,” Robert Conzo, CEO of The Wealth Alliance told Investing.com in an interview on Tuesday. “The dramatic hikes that they did in 2022, was really unprecedented … they made their statement,” Conzo added.
Pointing to a labor market that remains red-hot, the Fed, however, is hesitant to hoist the white flag on rate hikes.
With unemployment at the lowest rate in 50 years and little sign of a significant boost in the participation rate, the central bank has been keeping a close eye on core services, ex-housing, sector of the economy – flagged by Fed Chairman Powell as key inflation measure in which labor is the biggest cost.
Traders are expected to shift attention to Powell’s press conference at 14:30 PM ET (19:30 GMT). The Fed chief is expected to push back against the recent easing financial conditions that have seen risk assets start the year on a solid footing.
“There’s an expectation that Powell is going to push back some … it’s really just how hard he pushes back,” Chief Strategist at Spouting Rock Asset Management Rhys Williams told Yasin Ebrahim in an interview ahead of the Fed decision.
“If I were Powell, what I would say is that we’re going to be very data dependent, we could raise we could maintain, the only thing I can take off the table is we’re going to cut,” Williams added. “I think the markets would respond well to that message.”
Fed hikes by 0.25% in further downshift on tightening, but sees more hikes ahead
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